ARUN TEJA DOPPALAPUDI ROLL-2010-11 Student LLM 2 nd Year

DISSOLUTION:Dissolution means bringing to an end the legal personality of a company. WINDING UP:It is the process of bringing to an end the life of a company
However, the company is not dissolved immediately at

the commencement of winding up. Its corporate status and powers continue. Thus, winding up precedes dissolution

 Meaning of Winding up:- It is the process by which

the management of a companys affairs is taken out of its directors hands. Its assets are realized by a liquidator and its debts are paid out of the proceeds of realization and any balance remaining is returned to its members. Various modes of winding up 1. Winding up by the court 2. Voluntary winding up 3. Winding up by the supervision of the Court

1. Special Resolution 2. Default in holding statutory meeting 3. Failure to commence business or suspension of business. 4. Reduction of membership 5. Inability to pay debts Neglect to pay a debt exceeding Rs.500/-: Where the company neglects to pay or compound or secure the debt exceeding Rs. 500 within 3 weeks from the date of demand by any of its creditors. The creditor must make the demand by serving a notice, by registered post or otherwise. (Amendment Act, 2002:Rupees one lakh) s.434 Decreed Debt: A company shall be deemed to be unable to pay its debts if execution or other process issued on a decree or order of any court in favor of a creditor of the company is returned unsatisfied in whole or in part. 6. Just and equitable grounds

 7.Dead lock : When there a controversy between the directors of the company

who are having right and there is no probability of smooth running of the company then the company may be wound up 7. Loss of Substratum German Date Coffee Co. 85 In this case, the objects clause of the German Date Coffee Co. stated that it was formed for the working of a German patent which would be granted for making a partial substitute for coffee from dates and for the acquisition of inventions incidental thereto and also other inventions for similar purposes. The German patent was never granted but the company did acquire and work a Swedish patent and carried on business at Hamburg where a substitute coffee was made from dates, but not under the protection of a patent. Held, on a petition by 2 shareholders, that the main object could not be achieved and, therefore, it was just and equitable that the company should be wound up.
The petition is normally advertised in the newspapers on admission of the ex-

parte

 Losses

Oppression of minority
Fraudulent purpose Default in filing balance sheet etc.,:-

Acts of company against Sovereignty and integrity of

India

 Grounds for voluntary winding up:

a) Completion of duration of company: I ) A period defining the duration of the company has been fixed by the articles Such period has expired iii ) The company has passed an ordinary resolution for winding up b) Occurrence of event specified in the Articles and the company has passed an ordinary resolution for winding up. C) On any other ground: A company may be wound up voluntarily by passing S.R. Advertisement of resolution: Within 14 days of passing of the resolution the company shall give notice of the resolution by advertisement in the Official Gazette and also in some newspaper circulating in the district of the registered office of the company.

 On passing a resolution for voluntary winding up the

company shall cease to carry on its business, except so far as may be required for the beneficial winding up of the business. But the corporate status and powers of the company shall continue until it is dissolved. TYPES OF VOLUNTARY WINDING UP:1) Members Voluntary Winding Up: 2) Creditors Voluntary Winding up: 1) MEMBERS VOLUNTARY WINDING UP:a) Declaration of Solvency:-s.488 The declaration shall be made by a majority of the directors at a

 Meeting of the Board of Directors that the company

has no debts or that it will be able to pay its debts in full within 3 months from the commencement of the winding up. The declaration shall be verified by an affidavit. The declaration shall have effect only when it is: a) made within five weeks immediately before the date of the resolution and delivered to the ROC for registration before that date; and b) accompanies by a copy of the report of the auditors of the company

 PROVISIONS APPLICABLE TO MEMBERS VOLUNTARY

WINDING UP:1) s.490. Appointment and remuneration of liquidators: 2) s.491. Boards power to cease on appointment of liquidator. 3) s.493. Power to fill vacancy in office of liquidator. (GBM). 4) s.493. Notice of appointment of liquidator to be given to ROC. (within 10 days) 5) s.494. Power of liquidator to accept shares etc., as the consideration for the sale of property. 6) s.495. Duty of liquidator to call creditors meeting in case of insolvency.

 s. 496. Duty to call general meeting at the end of each

year. 8) s.497. Final Meeting and dissolution. The meeting shall be called by advertisement a) specifying the time, place and object of the meeting; and b) Published not less than one month before the meeting in the Official Gazette, and also in some newspaper circulating in the district of the registered office of the company.

 Within one week after the meeting, the liquidator shall

send to the ROC and the Official Liquidator a copy of each of the account and shall make a return to each of them of the holding of the meeting and of the date thereof. 2) CREDITORS VOLUNTARY WINDING UP:A voluntary winding up in which a declaration of its solvency is not made is referred to as a Creditors voluntary winding up. (ss. 500-509) 1) s.500. Meeting of creditors: It shall also cause notice of the meeting of the creditors to be made.

 Advertised once in the official and once at least in two news

papers circulating in the District of the registered office of the company. 2) s.501. Notice of resolution to be given to ROC. (within 10 days). 3) s.502. Appointment of liquidator. 4) s.503. Appointment of Committee of Inspection. ( 5 persons) 5) s.504. Liquidators remuneration. 6) s.505. Boards power to cease on appointment of liquidator. 7) s.506. Power to fill vacancy in office of liquidator 8) s. 507. Power of liquidator to accept shares etc., as consideration for sale of property. 9) s.508. Duty of liquidator to call meeting at the end of each year. 10) s.509. Final meeting and dissolution

 Any unregistered company may be wound up under Part X of the

Act, by the Tribunal, on three grounds detailed below, and in that behalf all the provisions of the Act shall apply with the exceptions and additions specified under section 583(3) to (5), and the other provisions of Part X operating as cumulative to the other provisions of the Act. The circumstances in which or the grounds on which an unregistered company may be wound up are: a. (a) if the company is dissolved, or has ceased to carry on business or is carrying on business only for winding up its affairs; b) if the company is unable to pay its debts; If a Tribunal thinks fit that it is Just and equitable that the should be wound up.

 According to section 591 foreign companies are the: (a)

Companies incorporated outside India which, after the commencement of this Act, establish a place of business within India; and (b) Companies incorporated outside India which have, before the commencement of this Act, established a place of business within India and continue to have an established place of business within India at the commencement of this Act. It is necessary to mention here that a foreign company is different from a foreign controlled company. According to RBI a company could be treated as a foreign controlled company if , (a) 40 per cent or more of its shares were owned in any one country outside India, (b) it was a subsidiary to a parent company in any country registered abroad, (c) 25 per cent or more of its shares were owned by a foreign-controlled Indian Joint Stock Company, which was not a managing agent, and (d) it was a company managed by a foreign-controlled managing agency company. A foreign company of which more than 50% paid up capital is held by Indian citizen or bodies corporate would attract more provisions.

 The companies act makes it clear that the provisions of

part X of the act, dealing with the winding up of unregistered companies, shall apply to the foreign companies115. The companies act, 1956 provides that where a body corporate incorporated outside India which has been carrying on business in India.

 In the wake of sickness in the countrys industrial climate

prevailing in the eighties, the Government of India set up in 1981, a Committee of Experts under the Chairmanship of Shri T.Tiwari to examine the matter and recommend suitable remedies therefore. Based on the recommendations of the Committee, the Government of India enacted a special legislation namely, the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) commonly known as the SICA. The main objective of SICA is to determine sickness and expedite the revival of potentially viable units or closure of unviable units (unit here in refers to a Sick Industrial Company). It was expected that by revival, idle investments in sick units will become productive and by closure, the locked up investments in unviable units would get released for productive use elsewhere.

 The Government had constituted on 22.10.99 a

Committee consisting of experts to examine the existing law relating to winding up proceedings of companies in order to re-model it in line with the latest developments and innovations in the corporate law and governance and to suggest reforms in the procedure at various stages followed in the insolvency proceedings of companies to avoid unnecessary delays in tune with the international practice in this field.

 2. This Committee was asked to examine and make recommendations

with regard to:a. the desirability of changes in existing law relating to winding up of companies so as to achieve more transparency and avoid delays in the final liquidation of the companies. b. the mechanism through which the management of companies will be conducted after the winding up of order is issued and the authority which will supervise timely completion of proceedings. c. the rules of winding up and adjudication of insolvency of companies. d. the manner in which the assets of the companies are brought to sale and the proceeds are distributed efficiently and e. a self-contained note on winding up of companies having regard to the Sick Industrial Companies (Special Provision) Act, 1985 and the Securities Contracts (Regulations) Act, 1956 with a view to creating confidence in the mind of investors, creditors, labor and other shareholders.

A new Section 647A has been inserted which provides that all proceedings pending before the commencement of the Companies (Second Amendment) Act 2002, before any District Court or High Court, under this Act or the Insurance Act, 1938 or any other law other than the Banking Regulation Act, 1949 shall be transferred to the Tribunal from the date to be notified by the Central Government in the Official Gazette and the Tribunal may proceed with the matter either de novo or from the stage it was so transferred. Proviso to this Section provides that where the winding up of a company has commenced subject to the supervision of the District Court or the High Court, before the commencement of the Companies (Second Amendment) Act, 2002, such winding up shall continue to be under the supervision of the District Court or the High Court and the Company shall be wound up in the same manner and in the same incidents as if the Companies (Second Amendment) Act, 2002, had not been passed. 2. Section 439A (2) ordains that the Statement of Affairs is required to be filed by the Company at the beginning itself, when opposing any winding up petition. The said statement is very elaborate and if any creditor files any frivolous petition the Company has to incur a lot of time, money and energy. 3. So far only the Government employees can be appointed as the Official Liquidator. Now professionals like CA, CS & ICWA or a body corporate of professionals can also be appointed. 4. Views of the creditors and workmen will be taken into consideration before appointing the Official Liquidator. 5. Practicing CA, CS & ICWA can appear before the Tribunal on behalf of the creditor, contributory or Official Liquidator 6. New rules regarding winding up are yet to be framed by the Central Government. Till then the existing rules framed by the Supreme Court will apply, subject to one exception, as to reference to the High Court will be construed as a reference to the NCLT.In sum and substance the effectiveness of the NCLT & NCLAT would depend in the first place upon the intention of those in the Government who would be entrusted with the constitution of the Bench and appointment of its Members.

 There should be still strong insolvency laws in India and

should follow UNICITRAL norms and guidelines in determining the solvency of a company and the delay in winding up by the court should be reduced The law should contain enabling provisions to deal with issues concerning treaties and arrangements entered into with different countries by India, present and future. India has developed commercial relationship with new countries in recent years and there would more new business relationships in future leading to treaties and arrangements from time to time. The law should facilitate recognition of jurisdiction, courts, judgments, cooperation and assistance from these countries.